Episode 3

Redefining the CFO Role and Navigating the Changing Landscape

November 15, 2023


Portrait photo of Kevin Sonsky
Kevin Sonsky
Founder and Practice Lead, KSon Consulting LLC
Randy Wootton
CEO , Maxio

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Video transcript

Randy Wootton (00:05):

Well, hello everyone. This is Randy Wootton with Maxio on our next episode of Expert Voices, where we bring experts from the SaaS industry together to talk about primarily what’s happening in the office of the CFO in this really interesting time we’re at where it’s just being disrupted by data, tech, process, AI, and then the evolution of the role of the CFO and what it is now to be a CFO in this new world order. And so I’m so excited to have with me Kevin Sonsky, a long-term finance executive. Started out as an accountant at Ernst & Young, then spent 23 years with Citrix working through the different roles of finance, then eventually becoming a finance leader at Citrix, and then today has now founded his own consulting firm where he is going in and helping companies figure out how to do finance right in this new world order. And so with that, welcome, Kevin.

Kevin Sonsky (00:58):

Thank you, Randy. Thank you for having me. Great to be here.

Randy Wootton (01:01):

Great to have you. And so why don’t we start there? You’ve really seen this play out over the last 25 years or so from the time when you started as an accountant, Citrix is a big company, you joined when it was smaller, but you went through several different evolutions with Citrix, and now you’re taking all that experience and helping small companies, big companies try to figure it all out. So can you just give us a little bit of your background in terms of the career transitions you saw and how that’s shaped your perspective of what it means to be a CFO today?

Kevin Sonsky (01:29):

Yeah, sure. I’m happy to share. As you said, started off as a traditional accountant, and CPA with big four accounting firms, and this was all about standard audit compliance kind of work. And I transitioned to Citrix, who was a client of mine, in that role. So eventually becoming the corporate controller and running things like SOX controls and closing the books every quarter, following accounting standards and governance, SEC filing, regulatory reporting, so it’s all the governance and compliance fundamentals. And then I transitioned from there into really what was a line of business finance support, which was really in the form of business intelligence analytics, which was not necessarily an established function, certainly not at Citrix, and at the time it was growing, a lot of companies were trying to figure this stuff out. And so this provided a really unique opportunity to be much more operationally focused, focused on the operational metrics that the leaders were making decisions, understanding how data and metrics can be manipulated, positive or negative, to tell a story or to get certain results, or look at certain results. And so there was a lot of alignment with the traditional FP&A, but we were doing a lot more line of business support in that area and really got a very good understanding of how the business operates. Did that for a long time, established the maturity of that governance and BI framework at Citrix, and then was selected to join the CEO to be his chief of staff for a couple of years. And that was wonderful. It was a bit of a consigliere type of role providing guidance. And then with my finance background, I created that alignment between the CEO and the CFO, as well as other members of the executive team. And I think that’s a key skill when you talk about the evolution of the CFO, anticipating what questions are going to be asked. And I think that’s where, similar to today, CEOs are looking for their CFOs to be their right-hand person in that respect.

And then ended my 23-year career at Citrix being a business unit finance leader. It was a $2 billion business unit, effectively a mini-CFO of that business unit, looking at all kinds of things around the product portfolio, what was the product innovation strategies and launch plans looking out five years out, and then the fundamentals of what does it mean to be a profitable business unit in a bigger conglomerate. So really ran the spectrum of experiences and learnings, and each one was a contribution to the next. Really enjoyed my time there and enjoying my time now.

Randy Wootton (04:01):

It sounds like an incredibly successful career. So I was chief of staff for a gentleman named Bill Veghte, who wasn’t the CEO of Microsoft, but he was one of the top guys, and it was a real mind opener to have that experience. Without sharing any secrets from Citrix, what are your top two takeaways from being the chief of staff, and having the front-row seat to the action?

Kevin Sonsky (04:22):

Probably one of the bigger takeaways is when you’re not in the room while difficult decisions are being debated, you don’t always appreciate the fact that there’s not always an easy or even great answer. Sometimes you’re choosing from two suboptimal choices. It’s not always easy. And you do your best to do what’s best for the company, for the employees, for the customers, and sometimes you have to take trade-offs on that. So that was a really interesting opportunity to see that these guys are trying to do what’s best, and sometimes the choices in front of them are not the easiest, they’re not always obvious. And then really the intangible dynamics between the executive team I thought was interesting. So obviously you can handle the day-to-day blocking and tackling, but then humans are humans, and personalities get involved, and just trying to figure out how do you navigate certain personalities to be able to work with each other, to collaborate with each other, to accomplish the same goals. So those were those interesting experiences.

Randy Wootton (05:23):

Yeah, I think spot on, I remember being in these rooms, it’s like 100 people sitting around as we were doing these QBRs, and I was three rows back from the front but had to be there to take all the notes and make sure we had all the follow-up action items. And we had 100-page decks with three slides on each page. And I remember Bill Veghte again saying to me, “Randy, these meetings could be boring since you’re not right on the front line.” But he said, “The thing you can learn while being here is ask yourself what is the question that Steve Ballmer is going to ask,” because I was there during the Steve Ballmer reign, and it was really powerful and valuable to try to think like an executive and follow the conversation and understand what they were debating and what were the nuances of the conversation of the decisions they were going to make. That great book, The Hard Thing About Hard Things, is they’re hard, there is no easy decision. And we have so many people around with competing priorities trying to understand the assumptions behind the recommendation or the political alignment, it was really fascinating. Probably not as helpful or insightful for the set of customers we’re talking about the early-stage startups. But I do think one of the things you mentioned was this idea in your evolution and the evolution of becoming a CFO and what CFOs need to be is how do you educate the sales and the CS leaders about the business. And I think you had some comments, and it’s one of the things now in the consulting practice that you’re doing is helping to move from a place of strength and finance, but really to provide insights more broadly across the business. Can you talk a little bit about your experiences there and what you’re doing today with that?

Kevin Sonsky (06:59):

Yeah, sure. It’s interesting to see this emerging area where ARR in particular for SaaS companies is just a critical metric and I keep getting the sense of companies going, “Gosh, why can’t we get this right? Or we don’t really have the handle on it that we’d like to have on it.” Or people asking questions and they can’t quite get the answers to them. And I think the CFO has a critical role or any finance leaders who jump into this ARR and SaaS metrics freight to educate the business unit and the leadership, as you said, the sales leadership, customer success, but even beyond that, even the finance teams, they have to think about how to model differently, they have to think about how to plan differently, they have to think about a completely different set of drivers and inputs and assumptions than they did maybe in a legacy software model. So I think helping early-stage companies and even those who may be transitioning from a legacy software model to a subscription model helps build that competency that is critical in order for them to be able to measure the business. I think having a metrics policy is the start, and that’s where I’m getting a lot of the questions and the demands on the consulting side how will we measure success, how will we hold ourselves accountable? We used to know how to do that in the old P&L, just looking at traditional P&L financial metrics, but what are these new world metrics? What’s a churn rate? What’s a net retention value? What does this mean to me and my incentives? How exactly can I influence these things as a leader in these various functions? What relationship do they have with the traditional finance metrics that we obviously still have an income statement and a balance sheet and cash flows and all that, and how do these correlate with each other? And so those are all the things that I think a CFO can help educate teams and leaders on. And then there’s a whole set of technologies and training and business processes that have to go along with that. CRM, and ERP systems, all have to be different, they can’t necessarily be rolled out in the way that they used to. So looking at things like planning models and billing systems and such are all part of this transformation to a SaaS or subscription business.

Randy Wootton (09:07):

And I think that’s what we’re seeing even more broadly in the disruption of the office the CFO, it’s a new way of aggregating data, it’s a new way of connecting technology, it’s a new way of thinking about the reporting. It’s not just the financial close and the three financial statements, but now you have an almost limitless number of operating metrics tied to the SaaS business model that you can pull together. And so that’s part of what’s making it hard to really define ARR is because it’s, I call it, the wild wild west. It’s not governed by GAAP necessarily. It is up to interpretation. Do you include CS above the line, or below the line, or do you throw gross margin against your LTV? But it sounded like one of the things you were pointing at was this idea of a metrics policy. And so for people who may not understand or know what a metrics policy is, I get it at the high level, but what would be included in a metrics policy and how do you use that as the components to create conversations with the other executives to get alignment on ultimately what becomes ARR?

Kevin Sonsky (10:04):

I think it starts with basic definitions. Some of these metrics are not what you would find in an accounting standard where they’ve defined it for you and you really can’t move outside of the parameters of things like revenue recognition and cash. And so you look at different companies and they all have a different way that they’re measuring renewal rate or retention rate or even ARR, because there really hasn’t been a single standard in the industry yet. Maybe it’ll come at some point. So the first step is definitions. For our business, and fill in the blank of what your business is, we have these types of pricing models, we have these types of business models, product offerings, and what does that mean from an ARR perspective or what does that mean from a renewal or turns perspective? And so we’re going to define exactly how we’re going to value the annualization of those arrangements and what are going to fall outside of recurring, what’s going to be the definition of recurring.

So defining those is super important. And then how we’re going to report on those and what cadence, how are we going to set our bonus calculations or incentive plans against these. And then, again, the metrics policy is even understanding how the systems are going to carry that data from the source all the way to the reporting side because, again, there are all these opportunities for people to redefine it the way they would like to define it. And so you’ve got to put it in writing and in stone and saying, “This is how we’re going to do it and these are the parameters we’re going to run around.”

Randy Wootton (11:34):

I think even going back to when I was chief of staff, Bill Veghte was trying to create a scorecard for the Windows and online business, which is about a 20 billion dollar business, and he only wanted 20 metrics. And I ran around, I had 50 versions of the scorecard, because every time I would talk to someone, they would redefine the metric that we were tracking or the target at which we were trying to achieve. And it was fascinating because everyone was trying to game the system. One, they wanted to get on the scorecard, because if you’re on the scorecard you were actually part of the NBRs. And if you weren’t, you had a job, but it wasn’t the most important to driving the business. But then number two was they were always trying to game how it was being represented. And I think to your point with the metrics policy, similarly, as you look across products and product profitability, segments, customers, customer profitability, regions, and region profitability, having a common way of defining the metrics and how they roll up into either subscription, usage, professional services type revenue is really important. And then being able to parse it out too, be able to go back in and look at say, “Hey, our expansion wasn’t as much as it was three months prior. Where’s that coming from? Is it coming from the platform? Is it coming from usage?” So the metrics policy is not just about keeping people in the same playground, it’s also helping you to be able to discern what’s going on. And so it’s almost the double-edged sword of SaaS operating metrics is you have an enormous amount of visibility, but then it sucks an enormous amount of time if you don’t have a constant way of expressing the metrics, reporting on the metrics, and having conversations around the metrics.

Kevin Sonsky (13:08):

Yep, exactly. I agree.

Randy Wootton (13:10):

And so with that, I think the other thing you were just hinting at, which I think is really interesting is, well, how do you now create an infrastructure built on starting with a policy that’s a spreadsheet or something, instantiated in a system, so connecting the CRM with the general ledger, and that’s obviously where Maxio sits as a billing and financial operations platform. So now you have technology connected, data flowing through it, reporting that you can use, but making that leap to actually paying people on it, that’s a big deal. So moving salespeople from just being responsible for bookings to being responsible for ARR and the split between new and expansion, we had chatted a little bit about that a couple of weeks ago. Do you want to talk a little bit more about what you’re seeing there and how things are unfolding and what you think is the right way?

Kevin Sonsky (13:59):

Yeah, I’d say that we’re in the early innings of companies even thinking that way. There are probably a few smaller startups born in the cloud-type companies that may already be there, and that’s wonderful, and they’ve already got that in their DNA, but when you think about coin-operate sales teams who are all about selling and measuring themselves on bookings, there isn’t always the other lens of, well, are you paying your people on the incremental dollars you’re getting from your customers or are you paying commission to a salesperson who’s selling maybe to the same customer either the same products or maybe new products, but they’re churning the old ones, and all you’re doing is filling a leaking bucket all the time, but you’re paying a sales person to keep that bucket at the same level year after year. Is that really what you want to do? Probably not. And it’s a tough leap technology-wise, process wise, and mind-share wise to say, “You know what? Maybe we want to think about keeping this super simple. You own an envelope of customers, and a chart of your own accounts, and those accounts were paying us $100 yesterday and we want you to get them to pay us $120 tomorrow, you’re going to get paid on that incremental $20. It doesn’t really matter how you do it, but you’re going to now be responsible. If they’re churning, they’re not renewing, you’ve got to go fill that bucket. And we’re not going to pay you just to keep selling or recycling renewals in the form of what looks like an upgrade or a different product. We’re just going to pay you that difference.” And it’s a tough leap to make because, again, it’s a change in the mind-share of the salespeople, but also your systems are generally not set up necessarily for that.

It’s a lot easier to just say, “Hey, I’m going to pay you on a deal that closes in Salesforce,” and move on. So it’s certainly a different philosophy on how to pay people, it puts ARR front and center, but ARR is a really hard metric to manipulate. There’s not a lot of messing around with it. It’s as simple as it was $100 yesterday and it’s $110 today, and it really doesn’t matter how you got from one to the other, but you can’t really mess with the fact that it’s either going up or it’s going down.

Randy Wootton (16:10):

But you have that territory aside, and so I think just to put a fine point on it, you’re describing an AE who’s almost acting like a CEO of the territory, and they’re responsible for getting net new logos as well as managing the customers they currently have. So they could either bring in new ARR through new bookings or they’re responsible for expansion ARR, and that’s through upsell and cross-sell or pricing increases. And then they’re also responsible for the contraction and the loss within that territory. And we talked a little bit about this last time. I love that idea, I’ve worked at companies where salespeople as CEOs also then get to deploy resources and you can move to a world where they’re being comped on contribution margin. So if they want to bring a sales engineer in, or if they want to bring a product marketer in, or if they want to give away a free trial for some period of time, that’s okay because they’re responsible for that book of business. And I think at the aggregate level what you’re describing is the ARR for that book, did it go up or did it go down, and were they being… are AEs incentivized to think about how to manage all the different levers that they could pull to try to drive that business up. I think when we were chatting before, it’s also this idea of the truth is on the frontline and it’s the people at the frontline understanding customers intimately are going to know who they can push to get a little bit more juice this quarter, where they need to go to accelerate a deal and how to deploy on it. And so you move from that command and control model to really the distributed frontline engagement force that’s able to take care of the territory. But to your point, it’s very hard to do I think both from a technology perspective and then also what you are implying is the change management perspective. When you have AEs, and I’ve been in sales for a while, it’s like, “Hey, I send this many emails, I do this many phone calls, I’m building this many SAOs, I know my win rate’s X, I can forecast what I’m going to make.” If you open up these other ways of playing, it requires someone to have a much broader perspective of how to be a business leader versus just a frothing revenue dog closing deals every week.

Kevin Sonsky (18:18):

And what you move to is that uncomfortable… I’m sure you’ve experienced it too when you were chief of staff, but when you had the sales leader presenting to the executive team or presenting to the board this is how we did for the quarter, and you get a couple of people scratching their heads and go, “That sounds like a totally different story than what the financial statements are telling me.” When you’re both looking at ARR, you can’t tell a different story. You are going to be on the same page with the results.

Randy Wootton (18:46):

Right. So the bookings versus what a salesperson is talking about bookings versus translating that to the ARR, which is a combined set of inputs versus the finance person coming, “Well, what was my revenue, and at the end of the day the contribution?” So then as we move forward into a world where AEs are CEOs of their territories were orienting the organization towards ARR… And I do think most SaaS companies that I’ve talked to when you talk about, “Hey, what are your company metrics?” It’s some combination of ARR growth, EBITDA, and then something in the middle, revenue growth or something along those lines. So I do think the executive team is probably aligned with what we have to be a growing SaaS business, and that’s defined by ARR growth.

But one of the things I was wondering is you chatted about how CFOs can help AEs, and what are the set of things that you do to help an AE better understand how to go after ARR or the levers they can pull? Do you have a couple of suggestions you would recommend for having the CFO move from the back office to the front office? So they’re not just the ones saying, “Hey, your numbers are wrong,” but they’re like, “Hey, we have a gap, and here’s how we can go after it together.”?

Kevin Sonsky (19:57):

Yeah, there’s a couple of areas. One on the education side. I remember actually having this conversation with someone in the sales organization, and if you can actually show them how sensitive that churn rate actually can be on the ARR growth over time, because they’re like, “Yeah, 89% sounds great.” And maybe it’s fine, everyone’s got to model it differently. Yeah, we got an 89% retention rate, great. If it goes down to 88%, is that the end of the world? No, it’s not the end of the world if it goes down to 88%. Well, here’s what 1% actually means to ARR over time. And you actually show that and your eyes bulge open because it really is quite sensitive that retention rate value and how much you’ve got to refill as you’re losing that base of customers. The other area which I think is much more tactical maybe to what you were asking is this is an opportunity I think for FP&A to be much more value-add oriented, meaning certainly they’re the budget oversight, they’re doing the planning and modeling and stuff.

But when you can get real crisp on your analytics, especially around ARR per customer, and you really start to understand the demographics of your customer, you can start running really interesting analytics for your account executives like cohort analysis and understanding, hey, we noticed that for a certain vertical in a certain geography, you’re getting measurably better renewal rates than these others. Why? There’s something going on there. Is there an area to attack, is there an area to learn from, and leverage across some of these other areas? Is somebody maybe in your team doing something differently than others are? Or a certain product adoption showing better adoption in certain verticals or certain channels? And so it’s an opportunity to really run very interesting analytics I think once you get that customer ARR detail at the leaf level, you can really add some value to some of these account executives.

Randy Wootton (21:58):

Just building on that idea of unit cost economics and understanding as you segment your customers how much can you afford to deploy. So if you are the CEO of your territory and you’re a strategic AE, you might be able to bring in a sales engineer and an architect to help frame a solution for a customer. You can’t do that for the $10,000 ACV customer. And so then I think the CFO and the finance team can help in terms of strategic pricing and packaging and what are the solutions, at what contribution margin can be deployed. And I think the other thing that you mentioned, Kevin, and we’re doing this right now at Maxio, is looking broadly across our 2300 customers and saying, “Okay, well, we sell to B2B SaaS, but which sub-verticals is it really resonating with and what makes it unique or why is that working and in other verticals we’re struggling in?” Sometimes, to your point, it comes down to the approach of the specific AE, the person they have on their team, but I think there are some things unique to each of the sub-verticals that you have to be sensitive to. And maybe it’s the way you position or the events you go to or the webinars you host or the problems that they’re thinking about or the seasonality of their cycles that would enable you to have a nuanced approach to market, which I think can lead to better results over time. So I think that the CFO moving from compliance and governance to strategic go-to-market partnership is really the opportunity for the CFOs of the future.

Okay. Well, we’re almost at the end of our time, so let me just ask you two things, and I know I’ve put you on the spot. What’s your favorite metric? Other than ARR, is there another metric that you like that you tell everybody they need to keep their eyes on?

Kevin Sonsky (23:39):

Other than ARR, well, you’ve got to look at your net retention value metric. It’s the metric that tells you if I don’t add another single new customer, is my current book of customers growing? And that tells you, obviously you’re always going to churn some amount, but are you expanding either through pricing or expanding licenses or new products or upgrades your existing customer base to make up for the ones that you’re losing if you never added another new customer? I like that one a lot.

Randy (24:18):

Yeah, I think that is the come to Jesus metric, are you a growing business or are you a decreasing business if you aren’t 100% super clear? Now, I think when you’re over 100%, then there are some nuances in terms of whether are you killing it and there are some companies that… Snowflake’s like 160% net retention, and there are other companies at 105%, but in general, I think the rule of thumb is if you’re at 110%, so you’re a dollar 10 for every dollar you had last year, is a good place to be. It’s a growing company. I think the one that I like to help frame if things are working is a CAC metric. What’s your payback period? How long does it take for you to actually get payback for the investment you made in sales and marketing? Because the sellers are often like, “Well, I got this customer, it was a $25,000 deal and it was a great deal.” You’re like, “Yeah, but look how much money we spent in terms of you as a seller, the sales infrastructure, the manager, the sales leaders, the RevOps team, all the technology, the 40 different SaaS solutions that you use, the marketing team, the BDR team,” all of that being aggregated and applied to a specific customer so that you can say, “Gosh, it’s going to take us 36 months to earn back what it costs to acquire them.” That’s more than a year. So even if you don’t get through the renewal, you feel like, oh my gosh, it was a long year and they cancel, you’re still in the hole for another two years. And I think that’s why there’s so much focus on overall sales and marketing efficiency and driving alignment with what can you afford. I think that’s another really great one to talk to people about and just say, “Do you get it? Even after a year, we still haven’t made money on this customer yet.”

Kevin Sonsky (25:57):

Yeah, that’s a great one, Randy. I agree.

Randy (26:00):

Well, great. Kevin, it’s always fun to chat. I appreciate your insights. And if people wanted to track you down, what’s the best way to find you these days?

Kevin Sonsky (26:07):

Probably LinkedIn. Look up my name on LinkedIn and they’ve got my contact information there, and happy to talk to anybody interested in trying to solve some of these problems.

Randy (26:17):

And is there a specific area that you feel like the companies you’re working with right now or the companies you’d like to work with that the problem from your background in this 25 years of finance, this focus on ARR, is there one where if someone said, “Gosh, really, I’m struggling with this, I should call Kevin,” what would that be?

Kevin Sonsky (26:36):

I’d say if you’re a subscription company, whether you’re in SaaS or just a traditional subscription, and you’re struggling with either your C-suite trying to figure out how to measure or talk about it or make decisions on it, or your board or even your finance team trying to figure out how to really understand how to run a subscription business, give me a ring, I’d be happy to help.

Randy (26:57):

Awesome. Well, thank you for your time, Kevin. Really appreciate it. Best of luck. And look forward to staying in touch.

Kevin Sonsky (27:01):

Thank you, Randy. Take care.

Randy (27:03):

Take care.